Microsoft reportedly in talks with ValueAct over board seat

SEATTLE -- Members of Microsoft's board have held talks with ValueAct Capital Management in recent days over the activist shareholder's demands to secure a seat on the company's board, two sources close to the matter said.

ValueAct, which wants a say in the way the world's largest software company is adapting to the new world of mobile computing, is seeking to nominate a person from its own organization, the sources said.

The San Francisco-based fund, which manages more than $10 billion for clients, owned 33 million Microsoft shares as of March, which is 0.4 percent of total shares outstanding, but it is believed to be buying more.

In recent months a number of Microsoft's top institutional investors have contacted ValueAct, expressing concern over management execution and strategy, the sources said.

High among the issues in the talks, which the sources described as ongoing, is the apparent lack of succession planning at the top of the company. Steve Ballmer has held the chief executive job since 2000 and shows no signs of relinquishing it.

Ballmer, 57, once remarked that he envisaged staying on until his youngest child goes to college, which would be around 2017 or 2018, but since then he has not publicly addressed the matter.

ValueAct declined to comment. Microsoft did not immediately respond to a request for comment. The software company has said there is a CEO succession plan in place, but declined to give details of it.

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On Friday, Microsoft's stock had its biggest one-day share decline in percentage terms since 2009. On Thursday, the company posted dismal quarterly results due to weak demand for its latest Windows system and a $900 million write-down on the value of unsold Surface tablets.

The results provoked fresh skepticism of Ballmer's plan, unveiled last week, to reshape Microsoft around devices and services.

"The recent reorganization does not fix the tablet or smartphone problem," Nomura analyst Rick Sherlund said in a note to clients on Friday. "The devices opportunity just received a $900 million hardware write-off for Surface RT and investors may not even like the idea of wading deeper into this territory."

ValueAct is thought to oppose Microsoft's recent foray into making its own devices.

Microsoft and Steve Ballmer have been the targets of much criticism over the past decade, chiefly for falling behind Apple (AAPL) Inc and Google (GOOG) Inc in the shift toward mobile computing.

The company has not been subjected to much overt protestation from shareholders. The most public challenge came two years ago, when Greenlight Capital's David Einhorn -- who made his name warning about Lehman Brothers' financial health before the investment bank's collapse -- called for Ballmer to step down.